Peter Hodson's Top Picks: Sept. 19, 2019

Full episode: Market Call Tonight for Thursday, September 19, 2019

Peter Hodson, founder and head of research at 5i Research
Focus: Canadian small- and mid-cap stocks

MARKET OUTLOOK

We don't understand why everyone is so bearish right now. Everyone seems to want a big recession and market correction. But based on 40 years of experience, problems don't typically happen when everyone is anticipating them. We see OK corporate earnings, high employment, lots of takeovers, dividends increasing and reduced valuations (due to pessimism). Sure, there is going to be a recession some day, but so what? Most (other than 2008) are short and shallow. We know investors who have been sitting on cash for seven years. The market could drop 50 per cent and fully-invested investors would still be ahead of these scaredy-cats. In addition, if you are still working and have cash to invest (more money than expenses), then why would you even want the market to go up now?

What is there to worry about? Lots. But there always is in the market. We don't like the trade war. We are a little worried about what Trump might do if he gets elected, knowing that re-election only happens once. He might really take off the gloves next November, but until then we think things are going to be OK.

TOP PICKS

Peter Hodson's Top Picks

Peter Hodson of 5i Research shares his top picks: Boyd Group, ECN Capital and WSP Global.

Boyd is finally converting to a corporate structure, which will open up its shares to new investors who have been prohibited from investing in a trust. Just good execution over the past 10 years, with lots of acquisitions still to be made, and the company might even be recession-proof (if car owners fix cars rather than buy them).

ECN just completed a very large buyback and shares have responded, up 34 per cent this year. The dividend was doubled in February. Steve Hudson knows the finance/leasing space. It’s got a cheap valuation at 13-times earnings, with very strong earnings growth coming next year. Lower interest rates and strong corporate business should support the valuation.

WSP is a well-run engineering firm which might get new business from the fallout from SNC-Lavalin. It’s got a big backlog, a decent valuation and good execution. Solid growth expected over the next 36 months, with good visibility.

Even though there are longer-term challenges for his company, and some small businesses may not survive the pandemic, the outlook isn’t gloomy for everyone. Some experts say businesses could emerge stronger than before, and new waves of innovation could transpire.

After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease.

“I’m concerned because many of our seasonal residents are not feeling as welcome. And they are welcome,” Phil Harding, mayor of the Township of Muskoka Lakes, Ont. told BNN Bloomberg in a phone interview Wednesday.

Dennis Mitchell, CEO and CIO at Starlight Capital talks about what corporate Canada needs to do to make a change when it comes to diversity and dismantling systemic racism. He suggests partnering with schools, improving the recruitment process and actually challenging the political class in this country. He says he's happy to speak with CEOs on this issue.